Nvidia is a great stock, this investor says

Semiconductor chip company Nvidia Corp (Nvidia Corp Stock Quote, Charts, News, Analysts, Financials NASDAQ:NVDA) is down by half over the past half-year, but investors shouldn’t be worried about the stock, says Middlefield Capital’s Shane Obata, who likes the company’s long-term outlook.

“I really love this company. Back to the idea of near-term challenges and long-term value, Nvidia’s gaming segment may have some troubles in the coming quarter and maybe potentially for a little while here,” said Obata, portfolio manager at Middlefield, who spoke on BNN Bloomberg on Friday. 

Nvidia, which designs Graphics Processing Units (GPUs) and application programming interfaces (APIs), has seen its share price tumble from just under $330 as of the end November to now the $166 mark — that’s a 50 per cent loss of value from a stock which has been a huge performer for years. Even with the pullback, NVDA is worth four times what it was a half-decade ago.

But while the company has been pulling back on the reins lately, slowing its hiring and decreasing its quarterly and yearly guidance numbers due to macro challenges, Obata sees a better view on the horizon.

“[Nvidia’s] GPUs were used pretty widely for crypto mining, and as we’ve seen that part of the market pare back, and there have been some changes to how Etherium is mined, too. So, now there are some supply issues leading to lower pricing and maybe some inventory issues for the near term,” he said.

“We like the gaming business for the long term, but investors really need to stay focused on the data centre part of the business,” he said. “It was discovered a long time ago that GPUs are ideal relative to CPUs for artificial intelligence applications, and so, Nvidia continues to grow at a rapid clip and its data centre business is actually now its biggest segment, even bigger than gaming.”

“We think the potential weakness in the gaming market gets overshadowed by strength in the data centre market. This is one of the purest ways to play the artificial intelligence theme and we think this is a great long-term story,” Obata said.

Nvidia reported earnings in May where its first quarter results featured revenue of $8.29 billion and EPS of $1.36 per share. Revenue was lighter than expected, with analysts on average calling for $8.11 billion and $1.29 per share, respectively. Management said a challenging macro environment including the war in Ukraine and COVID lockdowns in China would impede growth in the second quarter, calling for Q2 revenue of $8.1 billion compared to $8.5 billion expected by analysts.